Horton, the country's largest homebuilder, earned $109.7 million, or 35 cents a share, in the quarter ended Dec. 31. A year earlier, the company earned $310.1 million, or 98 cents a share.

While the earnings were down sharply, the results topped analysts' expectation for a profit of 33 cents a share, according to Thomson First Call.

Horton's top line fell to $2.80 billion from $2.84 billion but exceeded Wall Street's estimate of $2.76 billion.

The beat lifted the stock up $1.27, or 4.7% to $28.40 in recent trading, and gave a boost to other builder stocks as well.

Hovnanian ( HOV) recently was up $1.44, or 4.5%, to $32.91, and Ryland ( RYL) was adding $1.45, or 2.7%, to $55.88. Toll Brothers ( TOL) jumped $1.41, or 4.4%, to $33.72.

The rally could be fueled by a growing investor psychology that fundamentals are stabilizing in the sector.

"People are playing game theory," says one hedge fund manager who closely follows the sector but has sold off most of his positions. "The stocks typically lift six months or nine months prior to a bottom. There is no clear sign of anything getting better on one hand. But fundamentals probably stopped getting worse."